Questions raised about $240,000 state loan to Greene Turtle

An O'Malley administration plan to lend $240,000 to a Towson sports bar to finance its expansion is raising questions about the role of government in promoting economic development.

This week, the Board of Public Works opted to delay decidingwhether to approve the loan to the Greene Turtle in Towson, whose franchise owners want to double its size to meet an anticipated increase in competition from nearby projects.

State and local development officials called the loan necessary to keep downtown Towson vibrant, especially at a time when private financing is difficult to secure. They said the loan is similar to support the state has provided to small businesses in other commercial centers.

But two of the three board members said they don't understand why a successful restaurant needs this kind of state help.

"If they can't make a go of it without taxpayers' money, nobody can," said Comptroller Peter Franchot, a Democrat.

The loan from the Department of Housing and Community Development is part of an $893,000 financing package for the restaurant and bar, part of the popular Greene Turtle chain that started in Ocean City in 1976. The plan includes a $265,000 Baltimore County loan, which could be forgiven; a loan from Bay Bank, and contributions from the restaurant owner and landlord.

With the other sources of financing lined up, the proposed loan under the Neighborhood Business Development Program came up before the board Wednesday for what typically is routine approval. The board has approved many such bond-financed loans since the 1990s, including some for restaurants.

Carol Gilbert, assistant housing secretary for revitalization, said no loan under the program has been deferred or turned down since she came aboard in 2007. However, this time two of the board's three members raised objections.

Franchot questioned whether it was a wise use of state money to lend funds to a private business for furniture, fixtures and equipment. Franchot professed to love the Edgewater-based Greene Turtle chain but said he would vote against "this use of taxpayers' money to expand a sports bar in the middle of a college town."

Treasurer Nancy K. Kopp, also a Democrat, said she has concerns as well.

"It sounds to me like there's revitalization going on without it," she said.

Even though Towson is in his district, Republican Del. Bill Frank said he shares those misgivings. Frank, a former banker, said he has seen many cases in which public financing has been used to close a deal, but he noted that private money makes up less than half of the proposed Greene Turtle investment.

"Coupled with the county loan, the public sector portion of the financing exceeds well over half the package," he said. "This strikes me as a rather large piece of the pie coming from the public sector. I would like to see that decreased substantially."

The concerns in that district cross party lines.

"I'd rather see $240,000 being loaned to a school system to add air conditioning," said state Sen. Jim Brochin, a Democrat.

Brochin said he's aware of at least four projects worth a combined $350 million proposed or underway in downtown Towson.

"This is anything but a distressed area. I have never seen so much money go into Towson," Brochin said. "I see no need for the state to get involved in these private deals."

"While very good things are happening, many things are not so good," she said.

Van Arsdale said that while there has been generous private investment in large projects on the fringes of downtown, it's been more difficult for small businesses in the town's core along York Road to obtain private financing.

"We're very concerned about our center," she said. "Our center must hold for all of this to work."

To qualify for the loan, the Greene Turtle had to show it attempted to line up private financing, Gilbert said.

Restaurants, like many businesses, still face difficulty getting loans, she said. Banks, stung by the credit crunch in the recession, hew to much more stringent loan standards than they did before.

The franchise owners of the Towson Greene Turtle — Jeff Guidera and his sister, Jill Packo — could not be reached to comment.

"I think [the county] considers us the poster child for revitalizing this whole area," Packo told the Towson Times for a June article about the restaurant's plans.

The state and county loans would help finance the addition of a rooftop deck dining area — with parts open year-round — that would be visible from the street a few blocks away, Van Arsdale said. The idea was that the sight would draw people into the downtown area, where they would see the other restaurants and shops Towson has to offer, she said. Plans also call for improvements to the entryway and first floor.

The county economic revitalization loan, which is backed by the owners' collateral, would be forgiven, she explained, if the Greene Turtle meets goals such as adding 24 jobs to the existing 23, staying in business at least five years and completing of the project as approved and on time.

Van Arsdale said she does not know what will happen if the board says no to the loan. The county loan is contingent on the state contribution, she said. Having just heard of the board members' objections Thursday, she said county officials now are trying to figure out what to do next if the loan is turned down.

Gilbert defended the loan program, which she said is designed to help small businesses in revitalization areas, create jobs, stimulate participation by local governments and attract private sector investors. She said the state made $3.6 million in such loans last year, leveraging $26 million in private investment.

The Greene Turtle project is expected to generate 27 jobs and stabilize about two dozen more, Gilbert said. The loans typically carry a below-market interest rate, she said, usually from 4 percent to 6 percent.

Of the 24 restaurant loans currently in the program's portfolio of 101 business loans, Gilbert said 21 are performing well and only three are "stressed."

Most of these loans, she said, have gone to independent restaurants. The Towson Greene Turtle loan would be the first to go to a regional franchise, Gilbert said. There are 36 restaurants in the Greene Turtle chain, 24 of them in Maryland. Many of them are owned by franchisees.

Earlier this year, the board did approve a loan to a locally owned Popeye's franchise — part of a national chain — that promised to rehab a long-vacant building on U.S. 50 in Cambridge.

"Restaurants often have the highest positive impact in their neighborhoods in terms of jobs, of street traffic and community values," Gilbert said.

Christopher Summers, president of the libertarian-leaning Maryland Public Policy Institute, said the state has no business making such loans.

But Peter Morici, a conservative economist at the University of Maryland, College Park, rejected Franchot's dismissal of a loan to a sports bar. Morici said that if the goal is to stimulate commercial activity, such a loan makes sense.

"This is something that will sell," Morici said. "Maybe he's being a little too politically correct."

After the state's presentation Wednesday, Kopp — apparently the swing vote on the loan's approval — said she wants to see more details before deciding. Democratic Gov. Martin O'Malley, the third board member, warned department officials they would face similar questions anytime they seek approval of a loan to a bar or restaurant.